The SplitTrader.com Newsletter Tuesday 04/03/2001 1 of 1
Copyright 2001, All rights reserved.
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================================================================
In This Newsletter:
===================
Market Commentary - Baseball Is Back
Definition of the Day
Tuesday's Split Announcements - NVO
Wednesday's Expirations
Plays - New - Updates - Drops
Wednesday's Play-of-the-Day - PFGC
==================================================================
Market Commentary
=================
Baseball Is Back
While baseball fans started flooding ballparks around the country
to watch their favorite players swing for the fences, the market
was doing its best not to strike out. But strike out is exactly
what the market did today. The curveball thrown by the software
and networking sectors yesterday was too much for the market to
handle. The scoreboard at the end of the day tells the whole
story, DOW down 292.22 and NASDAQ down 109.97.
It was more earnings warnings and news of job cuts that had the
market swinging at balls in the dirt today. Ariba (NASDAQ:ARBA)
started the downturn with news that it would come in with fiscal
second-quarter earnings that will be half of what analysts were
expecting. On top of that, it is to lay off 2,100 employees or a
third of its workforce. Ariba is now expected to report a loss
of $51 million as opposed to expectations of positive earnings of
$12.6 million. In addition, they're calling off their merger
with Agile Software (NADAQ:AGIL). Not good. The stock finished
down $2.06 at $4.44.
Also chiming in with bad news was communications equipment maker
Redback Network (NASDAQ:RBAK). The company told investors to
expect earnings in the neighborhood of a negative $0.15/share
compared with previous estimates of $0.04/share. The requisite
downgrades followed the announcement and served to put RBAK back
at new lows. The stock finished off $1.93 to finish at $9.77.
Will we get to a point where earnings warnings no longer upset
the applecart? Of course we will, but it will take more earnings
visibility on the part of corporations that will enable them to
honestly say that business may be improving. The six-month
market discounting mechanism has been probing into the nether
reaches of the fourth quarter only to come back from the future
with a big fat question mark. Investors don't buy stocks on a
question mark; thus, the other shoe continues to drop.
Today's Markets
As already mentioned, it was more of the same today. Buyers
stepped out of the way and sellers turned up the heat as the
major indices took a beating.
The NASDAQ (COMPX) fell 109.97, or 6.17% to close at 1673.
Volume was heavy with 2.5 billion shares changing hands.
Confirming the overall drubbing, declining issues beat out
advancers 2983 to 799.
The DOW (INDU) stumbled by 292.22, or 2.99% to finish the rocky
session at 9485.71. There were precious few areas to hide from
today's carnage. Sellers who just wanted out at any price
occupied the regular hiding areas. Tobacco, drugs and healthcare
stocks all faltered.
The only ones smiling at the end of the day were those investors
that stuck to bonds. The 10-year benchmark bond added 9/32 to
yield 4.935% and the 30-year note put on 1/4 to yield 5.47%.
In economic news, new factory orders placed with manufacturers
dropped 0.4%, which was worse than expectations of a 0.2%
slowing. This data continues to highlight a manufacturing sector
that is in a recession and that is having a hard time getting rid
of inventory.
Stocks and Sectors on the Move
No amount of coaxing could get buyers out of their low yielding
money market accounts today. Even after Salomon Smith Barney
raised its equity weighting to 70% from 65% and gave the all
clear to dive back into tech, investors didn't budge.
It's tough times right now. Even the early-cycle tech companies
(the ones that take advantage of an upswing in consumer purchases
of PC's and other high tech products) faltered today and fell
back through chart support levels. Dell Computer (NASDAQ:DELL)
continued its three-day slide by falling another $0.63 to $23.44
and Apple (NASDAQ:AAPL) plummeted $1.35 to $20.24.
In other early-cycle tech wrecks, Advanced Micro Devices
(NYSE:AMD), which had broken out just seven trading sessions ago,
fell back $1.82 to $23.68. Joining AMD were shares of fellow
chipmaker Xilinx (NASDAQ:XLNX), which notched a new 52-week low
at $31.44 after falling $1.69 on the day.
The biggest disaster of the day, however, had to be the internet
infrastructure company Inktomi (NASDAQ:INKT). The company lost
55% of its value in hectic trade that sent the stock down $3.43
to $2.79. This was after they told investors that it would be
cutting 25% of its workforce to weather an economic environment
that is worse than they expected. The company also now expects a
loss of $0.23-$0.25/share for its second quarter, down from
analyst estimates of a loss of $0.04/share.
Other than the obvious harsh reaction to the bad news, I am
amazed by the shear magnitude of how much the analysts have
missed the downturns to these companies. These are widely held
and widely covered companies that either didn't see the economic
downturn coming, or were effected all of a sudden by the slack in
demand.
These warnings beg the question, "Are these downward surprises a
function of overly optimistic analysts or did this halt in
corporate spending really sneak up on the pros that fast?" If
the answer is the latter, I just hope that the consumer holds his
own, because the carpet could be ripped out just as fast under
the retail stocks that have been rising on anticipations of a
turnaround at the cash registers.
Having said that, hopes in the retail sector were stoked by
earnings out of Best Buy (NYSE:BBY) that beat Street
expectations. BBY posted fourth quarter earnings of $0.89/share,
walloping estimates of $0.82/share. Going forward the company
indicated that it sees same store sales increasing moderately in
the coming year, although it did note that it expects consumer
sentiment to remain soft.
Looking Forward, Always Forward
On Wednesday, investors get a peek at the March NAPM non-
manufacturing number and the March vehicle sales figures. Both
are expected to weaken. The NAPM is expected to come in at
%51.50, down from February's reading of %51.70, and vehicle sales
are expected to come in at 14 million, down from the previous
reading of 17.5 million. The vehicle sales number will
indirectly give us a read on consumer confidence, as folks don't
buy cars unless they feel at least somewhat confident in their
future household earnings prospects.
Looking at how much tech shares have come down from even just
last month, you have to wonder if CEOs feel that now is a good
time to announce their firm's expected upcoming short falls.
More warnings would almost certainly cause another slide in tech
share prices, but you'd have to think that current prices have
much of this expected bad news already baked into them,
cushioning any further slides.
Speaking of further slides, don't look now, but we appear to be
heading for lows on the NASDAQ that have not been seen since
October of 1998.
Chart of the NASDAQ Composite:
Bottom line is that the market tends to move quickly to extremes
before mellowing at some median range. I think we are in for
more downside, but I also expect that any move back to a median
range will be just as swift as the elevator ride down (sans
cable) on which we have been stuck. Third floor, trashed
semiconductor, software and networking stocks, everybody off!!
Keep Stops In Place and Play By Your Rules
Craig Seidler
Assistant Editor
www.SplitTrader.com
************************************
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Definition of the Day
=====================
Point and Figure:
One of the older charting techniques used in technical analysis.
For the complete definition, please go to:
http://www.splittrader.com/glossary/viewglossary.asp?glossaryid=296
Tuesday's Split Announcements
=============================
Tuesday, April 03, 2001,
Novo Nordisk Approves Stock Split, Changes ADR Ratio
Novo Nordisk A/S (NYSE: NVO) held their Annual General Meeting of
Shareholders on March 20, 2001 in which shareholders approved a
stock split of the American Depositary Receipts (ADRs), payable in
the form of a 3-for-2 dividend. Additionally, Novo Nordisk changed
the ADR ratio from two ADRs to one B share to the new ratio of one
ADR to one B share. NVO released their announcement through their
depositary, J.P. Morgan, on March 23, 2001.
For the complete announcement, please go to:
http://www.splittrader.com/announcements/040301_1.asp
=======================================
Wednesday's Expirations by Payable Date
=======================================
None
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=====================
SplitTrader.com Plays
=====================
The PLAY LEGEND:
SplitTrader.com Play Recommendations.
Updates are just that - updates on continuing plays
New plays are brand new for the newsletter.
Closing plays are plays that we feel have lost the advantage.
You will see:
Stock Symbol, Company Name, Closing Price, (change for the week)
Picked at date and Change since picked
Terms:
BoD = Board of Directors meeting
ADV = Average Daily Volume
dma = daily moving average
On the SplitTrader.com website we have very detailed profiles
for the stocks we play. Please take the time to visit the site
and look up a stock's profile if you are interested in more
information.
================================================================
=========
NEW PLAYS
=========
NEW SPLIT RUN PLAYS 04/03/01
============================
None
NEW SPLIT CANDIDATE PLAYS 04/03/01
==================================
None
NEW MOMENTUM PLAYS 04/03/01
============================
UNP - Union Pacific Corporation $57.35 +0.10 (+1.10)
Union Pacific operates a Class I railroad spanning 33,000 route
miles throughout the United States. The company also provides
trucking services for less-than-truckload shipments. Shares of UNP
have been trending higher for the past five months following nine
months of sideways trading in the $35-$45 range. The stock is
currently on a two-week bounce after a successful test of the $50
mark and the 100-dma on March 16th. The stock has been gaining
momentum due to the recent buzz surrounding the coal
transportation sector. We believe that UNP could reach new 52-week
highs as we move closer to its earnings announcement on April 26th
before the bell. From a technical standpoint, support is the 5-dma
at $56.59 with additional support at Friday's intra-day low of
$55.90. Resistance is Monday's intra-day high of $57.63 and then
the $58.25, the 7/9/99 intra-day low. Traders may consider
starting new plays on a bounce off of $56.59 or a breakout above
$57.63 on volume greater than 500,000 shares by noon. We plan to
set stops at $54.50 to limit potential losses.
Picked on April 3rd @ $57.35
Change since picked +0.00
Stop Loss @ $54.50
=======
UPDATES
=======
SPLIT RUN PLAY UPDATES 04/03/01
===============================
MBI - MBIA Incorporated $79.61 -2.09 (-1.07)
The interest rate environment for mortgage-backed securities
remains strong and continues to keep shares of MBI positioned for
more gains. On Monday, MBI shares delivered a nice rally, hitting
an all-time high of $83.80. More importantly, the stock was able
to close above its old high, which positioned us for a nice rally
on Tuesday. Although this scenario didn't unfold to our
expectations, MBI shares did pullback on light volume during
today's trading session. With 541,900 shares crossing the tape,
volume was held under the three-month daily average, as the stock
gave back 2.55% to close at $79.61. The good news is that MBI was
able to hold at its 5-dma ($79.62). Although, the 5-dma resides
right next to current levels, it positions us for a sharp bounce
as early as tomorrow. The short-term technicals also look bright,
with both the MACD holding positive and the OBV at year highs. So,
we'll now look for an upside move to encounter initial resistance
at the $80 mark and then at the all time high ($83.80). Support
will come in at the 5-dma and just lower at the 10-dma of $77.85.
Consider entries when the stock breaks above resistance or bounces
from support on good volume of 275,000 shares traded by noon.
Continue to hold a firm stop at the $76.50 mark.
Picked on April 2nd@ $81.70
Change since picked -2.09
Stop Loss @ $76.50
===
SBUX - Starbucks $41.75 -1.25 (-0.69)
SBUX did a good job yesterday of maintaining its value while so
many stocks collapsed. Today, a bit of a chink was evident in the
armor, but the stock is, nevertheless, showing some nice relative
strength. SBUX appears to have already gone through its major
correction and, having found some good support at $38.56, appears
to be headed in the right direction and should eventually test its
50-DMA of $46.41. That said, we are a little bit concerned that
SBUX closed today below its 200-DMA of $42.69. New positions
should probably be avoided until SBUX can cross back over this
important moving average. We would also be concerned if SBUX
drops below today's low of $41.63, which is sitting right on a
short term uptrend line. Longer term, we like the fact that the
MACD has just turned positive. We are also encouraged that SBUX
is scheduled to pay out a 2:1 split on April 26th. Therefore, we
expect a split run to occur once the overall market can stabilize
and begin to bounce.
Picked on March 29th @ $41.94
Change since picked -0.19
Stop Loss $38.50
SPLIT CANDIDATE PLAY UPDATES 04/03/01
=====================================
EQT - Equitable Resources, Inc. $70.59 +1.33 (+1.59)
Equitable Resources has posted gains in each of the past three
sessions as the energy sector heats up. On Tuesday, shares of EQT
hit an all-time high of $70.80 before settling back to close at
$70.59 on volume of 406,000 shares. The stock continues to move
higher on strong volume thanks to two positive earnings pre-
announcements from Dynegy (DYN) and Williams Cos. (WMB). The
energy sector has solid momentum build on improving fundamentals,
so EQT could be ready to make a string of new highs as we approach
its earnings announcement scheduled for April 20th. In the
meantime, support is Tuesday's intra-day low of $68.65 with
additional support at $67.23, the 10-dma. Resistance has moved up
to Tuesday's intra-day high of $70.80 and then possibly $73 or
$75. Traders should be looking for entry points on a bounce off of
$68.65 or a breakout above $70.80 on volume of at least 100,000
shares by noon. We are keeping our stops at $63.40 to limit
potential losses.
Picked on March 27th @ $67.20
Change since picked +3.39
Stop Loss @ $63.40
===
MKC - McCormick & Company $41.65 -0.37 (-0.34)
McCormick hit an all-time high of $42.25 on Monday. However, the
stock sold off slightly on Tuesday while the rest of the market
tanked. Shares of MKC traded to an intra-day low of $41.45 before
bouncing back to close at $41.65 on volume of 138,000 shares. MKC
is slowly working its way higher, although the daily volume has
been trending lower. The stock may spend some time consolidating
in the $41-$42 range until the volume picks up. For now, support
is Tuesday's intra-day low of $41.45 with stronger support at
$40.95, the 10-dma. Resistance is Tuesday's intra-day high of
$41.85 and then the all-time high of $42.25. A bounce off of
$41.45 or a breakout above $41.85 on midday volume greater than
80,000 shares may be possible entry points. Our stops remain at
$38.75 as downside protection.
Picked on March 29th @ $41.43
Change since picked +0.22
Stop Loss @ $38.75
===
PFGC - Performance Food Group $52.56 +0.75 (+0.06)
The plummeting NASDAQ had very negative breadth today. Decliners
smashed advancers by a ratio of 30 to 8. Considering this fact,
we were quite pleased that PFGC, a major food supplier, was able
to muster a solid advance of almost a point today. PFGC's action
was even more impressive when one considers that the stock closed
on its high print of the day while the NASDAQ showed a lot of
weakness into the close. Traders will definitely consider these
facts when they start looking for stocks to buy when the market
enjoys its next inevitable bounce. The 10-DMA provided pretty
good support today just under $51.00. Therefore, traders could
consider adding to their positions if PFGC can stay above $50.50
in the event of more market weakness in the early going tomorrow.
We don't expect that to be a problem, though, as the MACD and the
Money Flow are still trending higher.
Picked on March 25th @ $49.50
Change since picked +3.06
Stop Loss @ $46.00
===
RDN - Radian Group Incorporated $66.15 -1.95 (-1.60)
If you are bullish and think the economy is headed for a rebound
later this year, now could be a good time to shop for financial
stocks. We certainly think so and continue to like the prospects
for RDN going forward. On the day, RDN shares were pressured by
sector related weakness, which caused the NYSE Financial Index
(NF) to fall 16.28 points, or 2.77%, to close at $570.53. The
broad industry decline pressured RDN to finish lower by $1.95 and
close at $66.15. We do want to point out, however, that today's
decline was accompanied by volume of 368,300 shares, which came in
22% less than the three-month average daily volume. This indicates
that there is light selling at present levels and could result in
a quick turnaround if buyers come in. The technical picture also
boosts our confidence for an extended rally and tells us that a
run to $70 could still be in store. So, with that said, should
shares trend higher later in the week, we'll look for resistance
to emerge at the recent high of $68.98, followed by a harder
challenge at the $70 mark. Support will come at the 100-dma of
$64.32. Look for entry points when shares bounce off support or
break above the last high on volume of at least 225,000 shares
traded by midday.
Picked on March 18th @ $61.00
Change since picked +5.15
Stop Loss @ $62.50
===
UHS - Universal Health Services $85.55 -0.77 (-2.75)
This market is making investors try and hold on to something solid
and so far shares of this major hospital owner and operator have
proven to be somewhat resilient. There are probably a few reasons
why UHS is hanging in there. First of all, UHS has already pulled
back significantly from its high of $112.93. Secondly, UHS is
currently trading at a reasonable P/E of 28.42. This fact is
especially important considering UHS should be able to maintain
its steady earnings growth despite the economic slowdown. UHS is
also a viable split candidate because the stock is trading at
levels substantially higher than where it was trading when the
last split was announced. We like the fact that UHS was able to
close above its 50-DMA of $84.94 today. Momentum traders will
probably want to wait for UHS to move above Friday's high of
$90.25 before going long. To that add, the MACD and the RSI point
towards longer-term price increases. We do advise caution,
though, should UHS close below $84.94.
Picked on March 15th @ $83.50
Change since picked +2.05
Stop Loss @ $80.00
MOMENTUM PLAY UPDATES 04/03/01
===============================
KMB - Kimberly-Clark $65.85 -1.09 (-1.98)
KMB may not be the most exciting company in the universe;
nevertheless, its stock continues to attract investment due to its
stability. Although this play has pulled back so far this week
due to general market uneasiness, KMB could make a move tomorrow
following some potentially positive developments after the close.
KMB's Executive Vice President, Kathi Seifert, is speaking at the
Banc of America Securities Consumer Products Conference Tuesday
afternoon. She will be outlining KMB's strategic initiatives and
provide an overview of the company. These types of presentations
are usually pretty positive because they are designed to encourage
investment in the company by the conference attendees.
Technically speaking, KMB saw its third mild down spike of the
past two weeks today. The previous two spikes were one day events
and the stock quickly recovered and moved right back to its 50-
DMA. This moving average closed today at $67.97. We would be
cautious about adding positions if this pattern does not repeat
itself and KMB drops below $65.28. Otherwise, traders could
consider adding to positions if KMB opens flat to a little higher
(no more than two points).
Picked on April 1st @ $67.83
Change since picked -1.98
Stop Loss $62.50
===
WM - Washington Mutual Incorporated $52.95 -1.38 (-1.80)
The month-old Fed loosening cycle on interest rates is a double-
edged sword for most thrifts, but that's not stopping investors
from buying Washington Mutual. One reason for this could be that
the company also stands to benefit from higher fees for its
originations and from the sale of fixed rate mortgages. Whatever
the case may be, traders probably won't argue over the chart. WM's
long uptrend is hard to overlook and continues to keep the stock
poised for more gains. Moving to the stock, WM shares, after
reaching an intraday high of $55.63 on Monday, gave up 2.54% in
today's trading to close at $52.95. Volume on the day came in just
below the three-month daily average, as 3,120,200 shares crossed
the tape. Although this was higher than we would have liked, the
intraday chart reveals that the majority of trades changed hands
in the first hour of the day, as shares gapped higher at the open.
This does provide us with some indication that momentum players
are still eager to buy. So, as for entries, we'll look for a move
above $55 to be a possible entry point. A bounce off support
offered by the 10-dma of $52.19 might also be a good low-risk
entry level.
Picked on April 1st @ $54.75
Change since picked -1.80
Stop Loss @ $50.75
=====
DROPS
=====
SPLIT RUN PLAY DROPS 04/03/01
=============================
None
SPLIT CANDIDATE PLAY DROPS 04/03/01
===================================
None
MOMENTUM PLAY DROPS 04/03/01
=============================
THQI - THQ Incorporated $35.13 -1.63 (-2.88)
THQ has been under pressure over the past two days. On Tuesday,
shares of THQI fell to an intra-day low of $33.63 on volume of
610,000 shares. We were stopped out at $35, so we are dropping
THQI tonight.
Picked on March 25th @ $34.50
Profit/Loss = +0.50 (+ 1%) (Stopped out @ $35.00)
Best Profit = +5.44 (+16%)
WEDNESDAY'S PLAY-OF-THE-DAY
===========================
Tuesday, April 3, 2001
=============================
PFGC - Performance Food Group $52.56 +0.75 (+0.06)
Tuesday's Comment:
The plummeting NASDAQ had very negative breadth today. Decliners
smashed advancers by a ratio of 30 to 8. Considering this fact,
we were quite pleased that PFGC, a major food supplier, was able
to muster a solid advance of almost a point today. PFGC's action
was even more impressive when one considers that the stock closed
on its high print of the day while the NASDAQ showed a lot of
weakness into the close. Traders will definitely consider these
facts when they start looking for stocks to buy when the market
enjoys its next inevitable bounce. The 10-DMA provided pretty
good support today just under $51.00. Therefore, traders could
consider adding to their positions if PFGC can stay above $50.50
in the event of more market weakness in the early going tomorrow.
We don't expect that to be a problem, though, as the MACD and the
Money Flow are still trending higher.
Picked on March 25th @ $49.50
Change since picked +3.06
Stop Loss @ $46.00
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